Managing Your Finances With Debit and Credit Cards
It is hard to imagine or, for the older generation, to remember life without carrying plastic cards wherever we go. Credit cards have been available for many years. Debit cards were introduced some time later, but when most current accounts still attracted interest for staying in the black. At the time, many credit card users couldn’t think of a reason for using debit cards, since they would lose interest on the money withdrawn from their accounts immediately.
Times have changed. Not many bank accounts offer current account interest now. Most people use their debit cards as cash cards for withdrawing money from cash points or automated teller machines, often free of charge. Debit cards also make it unnecessary to carry money around as they can be used at sales outlets instead of cash. While they can take you into an arranged overdraft, payment will be refused if you try to go beyond that.
Credit Cards: Blessing or Curse
Spending with credit cards is what has got many people into serious financial trouble. If you have a reasonable credit rating you can get any number of them, each one with its own level of credit, so the amount available can add up. If your income is later reduced, you are still left with a raft of debts to pay off.
If you can discipline yourself to use them wisely though, they can help you manage your finances. Time your spending to the beginning of the statement period and you hold onto your cash for longer. Pay off your balance for the month and you have had a free loan for a few weeks. If you can’t pay the full amount immediately, a high amount of interest will kick in, but it could still be cheaper than a long term loan or hire purchase if you have a plan to pay it off within a few months and you stick to it.
Unfortunately, there are those who spend unwisely. They buy because they want something now, even though they are not sure they can manage more than minimum repayments, which will cripple them with a heavy debt burden for years. They become victims of the system in which credit cards make the buying easy but the payback long and hard. If you fall into that bracket and haven’t yet cut up your credit cards, now is the time.
Safest for Online Shopping
On the other hand, if you are a sensible credit card owner who shops online, you will be safer using a credit card than a debit card. This is because credit card purchases are protected by law with the credit card company jointly liable. If you don’t receive what you have paid for, or have received goods that are damaged or faulty, you are entitled to your money back from the credit card company. The same doesn’t apply to your bank if you use a debit card, so you are safer using the credit card online.
Using Balance Transfers
If you are lucky, you will be able to transfer a credit card balance to another card offering a zero interest rate for an initial period. But do remember when this offer runs out because the interest rate that kicks in is likely to be high. A few credit cards will even cover an overdraft balance in your bank account. There is usually a fee to be paid for these facilities, so you need to be sure you will be better off through using them.
Don’t do this too often though. If you keep changing credit cards to transfer balances, you may find it gets harder and harder to find one that will accept you, and the rejections affect your credit rating.
Managing a Poor Credit Rating
If your credit rating is poor, you may only be able to have a simple bank account, with no overdraft allowed and no debit card, only a cash card to access your money. But you may be eligible for a secured credit card, for which you have to make a small refundable upfront payment. These are advertised as a way to start building or rebuilding your credit rating. But be warned, the credit they offer will be very limited and will have a very high interest rate, typically over 30%.
A Final Warning
Of course, both debit and credit cards can expose you to identity theft. Cash machines can be tampered with, and fraudsters go to great lengths to get hold of these card details. It is vital to be aware of, and alert to, these possibilities, and take precautions to avoid losing out to them. Keep your pin numbers secure and only buy from reputable and secure websites.
Sam Jones, the author, has a number of UK credit cards and debit cards and finds them much more effective for financial management than cash!